Market surge improves MF returns; investors look to take money off table

Yields by large-caps jump to positive terrain in four days

The record gains posted by the indices over the last two days have prompted some mutual fund (MF) investors to consider exits, with mark-to-market losses on their investments showing significant moderation during the rally.

According to data from the Association of Mutual Funds in India (Amfi), the one-year return on large-cap schemes stood at -3 per cent last Thursday. On Monday, the one-year return for this category had swung to 5.3 per cent. In the case of mid-cap schemes, the one-year return has improved from -10 per cent to marginally negative, as of Monday’s closing prices.

Advisors say some MF investors, who were sitting on heavy mark-to-market losses on their investments, are considering pulling out their investments. This is because part of their losses were recouped during this rally. 

“We are getting calls from investors who want to know if the rally in markets has brought the value of their investments closer to their original figures,” said Srikanth Matrubai, chief executive officer (CEO) of Srikavi Wealth. 

Industry observers add that such exits will be limited to a few investors. “Certain investors had made investments in small-cap funds in 2017, when markets were seeing a strong rally. These investors have been nervous as small-caps have taken a heavy beating since then. However, the exit of such investors is unlikely to have a significant bearing on industry flows,” said Dhirendra Kumar, CEO of fund tracker Value Research. 

One-year returns of small-cap schemes have improved from -13 per cent to -6 per cent over the last two days; still deep into the negative territory. 

On Friday, the benchmark indices posted record single-day gains, after Finance Minister Nirmala Sitharaman reduced corporation tax rates. The rally continued on Monday, with the two-day gains extending to over 8 per cent.    

Industry sources say certain investors had made large lump-sum investments (tactical investments as opposed to systematic monthly commitments) in 2017. 

"Some retail investors had even built leveraged positions in 2017. Apart from these, some investors waiting for an exit are in the hybrid equity category, in which they have been seeing lower dividend payouts, coupled with sharp erosion on their capital," said Bharat Bagla, director at BEES Network, an investment advisory firm. 

In 2017, the Sensex had gained above 27 per cent. In the following year, the index yielded gains of only 5.9 per cent, while the broader markets came under heavy selling pressure. The BSE Midcap and BSE Smallcap were down 13.38 and 23.5 per cent, respectively. 

However, industry sources suggest that investors participating through systematic investment plans (SIPs) are continuing with their monthly commitments. 

The steady contribution through SIPs has led to the steady stream of equity flows seen recently. In August, the MF industry received Rs 9,152 crore of equity flows, which was 13 per cent higher than the previous month. 

The monthly contribution through SIPs stood at Rs 8,230 crore in August, which was marginally lower than July.